Mobile commerce (m-commerce) in India is set to grow on the back of rising demand and acceptance of such services in India. According to the Telecom Regulatory Authority of India (“TRAI”), as of January 31, 2012, India had 903.7 million cell phone subscribers, and was adding new subscribers at a rate of 1.1% (9.9 million) per month with the rural growth rate more than twice the rate of urban growth.

Validating this potential, Calpian, Inc., a Dallas-based public company engaged in the electronic payment processing business, has picked-up a 15% stake for an initial amount of $1.3 million in Mumbai-based My Mobile Payments Limited (“MMPL”) through a newly-formed company, Digital Payments Processing Limited (“DPPL”).

While MMPL will own the distributor and retailer network contracts and maintain custody of the user’s funds in accordance with India’s regulations, DPPL will own and operate the customer support call center, the sales support and back-end processing functions, and has licenses to use all the intellectual property necessary to process the millions of transactions occurring each day. DPPL will be managed by MMPL’s existing executive team.

Speaking on the investment, Calpian’s CEO, Harold Montgomery, commented: “We are thrilled to complete this round of our investment in MoM. The product is exceptional and the leadership team is dynamic and visionary. With MoM’s annualized processing volume of over $72,000,000, which is growing at a monthly rate of 7%-10%, we believe this company has a bright future. We are especially pleased to be a leader in helping to further the Reserve Bank of India’s efforts to extend basic financial services to all members of Indian society.”

Calpian’s initial $1.3 million investment is the first in a series of investments Calpian expects to make in DPPL over the next 20 months. Calpian has structured its investment in DPPL as an initial and second funding totalling $2.5 million, then quarterly tranches of approximately $1.2 million each occurring over the following 6 quarters and resulting in a total expected investment of $9.7 million. At the end of the investment series, Calpian expects to own approximately 74% of DPPL with the remainder held by its management team.

Calpian representatives, Messrs. Montgomery and Pilotte, will hold two of the four Board positions in DPPL and Mr. Montgomery will be its Chairman and have a tie-breaking vote. In addition, Mr. Montgomery will hold one of the 6 Board positions in MMPL.

MMPL was started in 2010 by Shashank Joshi (MIT alumni) and in November 2011, MMPL had received the licence from RBI to offer semi-closed mobile wallet across India and had launched the B2C service in December 2011. The company has earlier launched its B2B service in Gujarat in March 2011 with recharge offerings for cell phones, DTH accounts, rail and air travel, movie tickets as well as electricity bill payments for which they had also tied up with 13 state electricity boards and were in talks with many others.

Currently, MoM operates through a network of 55,000 retailers over 200 cities in over 15 states across India and plans to open 3,000 franchisees in Andhra Pradesh before entering Tamil Nadu and Karnataka at a later phase. In terms of users and revenues, MMPL has more than 2.7 million users and processes more than $72,000,000 (U.S. equivalent) in transactions each year (annualized based upon January 2012 data and recent trends).

The company operates under the“Indian Payments and Settlement Systems Act 2007,” and holds the RBI licence to operate a payments system in India through October 24, 2013. MoM’s service offering operates independent of the consumer’s mobile operator or bank, and thus every mobile subscriber can avail of the service.

As per the data available with TRAI, while the share of Urban subscribers has been falling slightly, it still accounts for over 65% of the total number, as opposed to 35% for Rural consumers, with overall teledensity for India hovering at close to 75%, signalling the huge potential of the market.

While the current competition in this space is limited, with small players such as OxiCash, Zip Cash, atom etc. the recent entry of larger players such as Airtel (Bharti) will significantly intensify the competition in the space.